Solar and Batteries are Knocking on Utilities’ Door – Part 2

solar-panelsRock Creek, Montana     Bill McKibben, professor and environmental advocate, most notably through 350.org, wrote an interesting piece in The New Yorker, making the case that we are on the verge of the big leap to solar and, essentially arguing that utilities are standing in the way of systemic change. Solar, wind, and other renewables are increasingly able to provide the power, costs are plummeting, batteries are improving, and the monopoly utility cost and financing structure and their resistance to change are now the essential stumbling blocks according to McKibben.

The heart of his argument is “…that innovation, energy-saving and energy-producing technology is now cheap enough for everyday use.” Significantly the story line behind this is what he bills as a regular working class house for a regular working class family in Vermont. The Canadian-owned Green Mountain Power had financed an energy makeover for a family with new insulation, heat pumps for the water heater and to warm the house, solar panels on the garage, and LED light bulbs. The family reduced the “energy footprint of their house by eighty-eight per cent in a matter of days, and at no net cost.”

McKibben is on solid ground on the declining price of solar panels. He notes that “price has dropped ninety-nine per cent in the past four decades, and roughly seventy-five per cent in the past six years.” I’m on record as a believer in their ability from my experience on the receiving end on Rock Creek. Most of the rest of the piece was his effort to establish that utility companies are in “a death spiral,” as their industry trade group, the Edison Electric Institute, has warned, and that they need to change or be made to change. His exact words “are waiting for someone to tell them what to do.” By that he means all of us as customers or the government.

McKibben’s view of black and white, good and evil is appealing, and god knows we’re on his side, but a careful reading really establishes that we are close, but not quite there, and part of the problem is plainly the economics still aren’t there as Melanie Cranston detailed in her current article running in Social Policy. The “biscuit cookers” as the old Arkansas energy czar Witt Stephens used to call utility customers are subsidizing the upper income users who have made the shift in places like California for line use, peak demand access, and all back up supply. Indirectly, McKibben even furnishes a good example of how close the cost factors really are for both customers and wannabe renewable users and the utilities. Arizona utility regulators approved a minimal $5 per month user connection fee for customers converting to solar, 90% less than Arizona Public Services (APS) had requested, and the numbers still worked for companies like Solar City who were installing the panels. The Salt River Project, which is also in Arizona unilaterally put a $50 per month charge on solar users, and the installers moved elsewhere because the numbers didn’t work. McKibben doesn’t explain that Salt River is not under the Arizona Public Service Commission because it is an operation more along the lines of the TVA, more public, than private.

Utilities have not sufficiently earned the trust of most customers that is adequate to allow them to control demand within a customers’ home which is part of the quid pro quo on the Vermont story, along with liberal financing from the utility, which is also not something being offered or incentivized in much of the country, including the “sunny” belt of the South. For lower income and working families especially it is not enough to find that there is “no net cost” in this kind of wholesale conversion to a new technology. There needs to be a real savings, and if there’s not a substantial savings then there has to be a program from somebody somehow that shoulders the transition costs for the user.

When the economics are so tight on the conversion that a regulatory swing of $500 like in Arizona makes the whole solar project collapse, the ice is just too thin still for most people. Sadly, I know they are for me. I also know the politics of too many Southern and Western states, the legal requirements binding the regulatory bodies, the power of utilities during the legislative sessions, and how few of the regulators are elected these days. $5 today could be $50 tomorrow or $100, and that doesn’t work, especially when energy is still relatively cheap in the USA for most people. I’m not even sure I know what to make of David Crane of NRG, “the country’s biggest independent power provider,” as McKibben calls them, and his statement about eight per cent of a family “disposable income.” Why did he use the word “disposable?” Did we just reduce overall income to a lower subset to boost energy expenditures up to 8%? And, when Crane says “on all forms of energy,” does that include what we pay at the pump to put our cars and trucks on the road for work and whatever?

McKibben is right and on the side of the angels here, and his advocacy resonates with what we need to achieve climate change and environmental health, but short term low and moderate income people can’t make the leap across the divide until the money is right, and the figures, unfortunately, are still way too tight. The clock is ticking, but a lot of us are going to have to wait until the savings are on our side just because our wallets are lighter than our energy bills, no matter how much we hate our utility companies and would like to let the sun shine our systems.

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Understanding Net Energy Pricing as Another Subsidy of the Rich by the Poor

140711-upsolarNew York City         At the Institute for Energy Economics and Financial Analysis during the second day of the organizing conference, we witnessed a fascinating argument, disguised as a debate in the question and answer section, between a number of environmental advocates and a hedge fund manager over the competing values of social justice and solar power in net pricing, primarily as it is practiced in California.  The hedge funder was arguing the case of social injustice, calling net utility pricing a direct intra-ratepayer subsidy by the poor and regular consumers, particularly tenants, of the rich, upper income investors in solar power, who owned the buildings and were landlords.  The environmentalists were querulous advocates of the need for renewable energy investment by any means necessary.

Jonathan Barrett is the managing director of the hedge and equity fund called Luminus Management, which specializes in the understanding and investing in the power and energy markets.  He’s originally a South African who has bounced around several merger and acquisition jobs on Wall Street.  He’s on the board of a nonprofit called Hedge Funds Care for Children and the Harlem Charter School.  From his remarks he’s politically and ideologically conservative, believing for example that all government investments are bad, that regulations are evil using as his example the telecom industry versus the internet (ignoring the government investment there!), and that the Republican Congress may get the budget under control at another point.  Suffice it to say, he is a most unlikely advocate for social justice for the poor, but there you have it, which also explains how complicated the issue of net pricing is, and against all odds how compelling his case was, despite his serving as its knight and unlikely champion.

Net pricing, particularly as practiced in California, requires that all excess power generated by a consumer-based supply, like rooftop solar, rolls the meter back towards zero and when there is a surplus has to be purchased back at retail rates by the utility company.  He argues, that net pricing has to disappear, and others in the finance energy agreed with him, because it is financially unsustainable.  The utility is having to eat its own cost of transmission, sunk generation costs, and has to guarantee that it will still provide the same customer with electricity at peak usage periods and pay the price to do so, which means that it loses money on the net pricing transaction to that particular consumer.  Where Barrett wins the point is that there is no governmental subsidy, but a subsidy from other ratepayers that are underwriting the initial investment of the landlord or homeowner who are quickly getting back much of their investment and being paid an unrealistically high price, which the public, investor owned utility has to then pass on to the poorer consumer, making it a highly regressive tax of sorts.

Environmentalists tried to counter his argument by trying to argue that other industries like oil were subsidized or that renewables like wind and solar were new industries and deserved subsidies, but there points were glancing and easily batted away by Barrett.  Wind, he argued, was an old industry, oil he easily argued was crony capitalism based on special interests pleadings, but it hardly mattered.  It was all easy work for him since the various environmentalists that appeared before the floor microphone had no direct argument that this was not an income transfer from the poorer to the richer and therefore regressive.  The other members of the panel one from JP Morgan and another from a foundation, wisely kept their own counsel and slumped down lower towards the table as Barrett dispatched the arguments with some pique.

There was a fairer contest between the two Wall Street wheeler-dealers on the issue of yield companies and how long they might last with an investment before they inevitably lost their shirt and the fact that regular Joe’s would be fools to invest based on yield since only luck would keep all of them from going to the cleaners.  That argument was also fascinating, if any of us had had a couple of extra hundred million to throw into the game with these financial sharks, but “net pricing” was an education, since in a kneejerk way many of us might have just assumed it was a social and community good until we witnessed Barrett’s performance, but now in the words of Poe’s raven, can do so “nevermore.”

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Please enjoy The Wrong Year by The Decemberists.

Thanks to KABF.

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